LOC Fees Explained: Every Charge on a Business Line of Credit

Every Fee That Can Appear on a Business Line of Credit

Lenders do not make money only on interest. A business line of credit can carry six to eight separate fee categories, and borrowers who compare only interest rates routinely underestimate total cost by 20 to 40 percent.

The Federal Reserve's 2025 Small Business Credit Survey found that 61 percent of business owners who reported dissatisfaction with their credit facility cited unexpected fees as the primary complaint (Federal Reserve Banks, 2025 SBCS).

The Standard Fee Menu

• Origination or setup fee: charged at closing, typically 0.50 to 3 percent of the credit limit
• Annual or renewal fee: charged each year the facility remains open, ranging from $0 to $2,500
• Monthly maintenance fee: a flat charge assessed every month, common at $25 to $75
• Draw fee: assessed each time you pull funds, typically 1 to 3 percent of the draw amount
• Unused line fee (commitment fee): assessed on the undrawn portion, usually 0.10 to 0.50 percent annually
• Late payment fee: typically $39 or 5 percent of the missed payment, whichever is greater
• Early termination or prepayment fee: charged if you close the line before its contractual end date, ranging from $0 to $500 or 1 to 2 percent of the original limit
• Wire or ACH draw fee: some lenders charge $15 to $35 per fund transfer regardless of draw fee status

See the full breakdown of draw periods and fine print for how these fees interact with repayment timing.

Origination and Setup Fees: What You Pay Before You Borrow a Dollar

An origination fee is deducted from your available credit or billed at closing before you make a single draw. On a $150,000 credit line with a 2 percent origination fee, you owe $3,000 on day one regardless of whether you ever use the money.

The range is wide. Community banks often charge 0.50 to 1 percent, regional banks land at 1 to 2 percent, and fintech lenders commonly charge 2 to 3 percent or more (Nav Business Finance Report, 2025).

Setup Fees vs. Origination Fees

Some lenders separate a flat setup fee ($250 to $750) from a percentage-based origination fee. Both are one-time costs, but they stack. A $100,000 line at a 1.5 percent origination fee plus a $500 setup fee costs $2,000 before your first transaction.

Origination fees are sometimes tax-deductible as a business financing expense, though you should confirm treatment with your accountant. Read the qualification guide to understand how your credit profile influences fee tiers.

Maintenance and Annual Fees: The Ongoing Tax on Having Access to Capital

Annual fees and monthly maintenance fees are charged simply for keeping the line open, even when your balance is zero. A $75-per-month maintenance fee costs $900 per year, which on a $50,000 line represents an effective 1.8 percent drag before interest begins.

The Consumer Financial Protection Bureau noted in its 2024 Small Business Lending Report that recurring facility fees are disclosed inconsistently across lenders, making comparison shopping harder than it should be (CFPB, Small Business Lending Market Report, 2024).

Annual Fee Structures

Annual fees typically fall into one of three structures. A flat dollar fee ($150 to $2,500) is the most common at traditional banks. A percentage of the credit limit (0.10 to 0.50 percent annually) is more common on larger institutional facilities. A tiered fee based on draw activity, where the fee is reduced or waived if you draw more than a set threshold per year, appears most often at regional banks trying to incentivize utilization.

Monthly Maintenance Fee Reality Check

• $25/month: $300/year, most common at mid-tier online lenders on lines under $100,000
• $50/month: $600/year, typical at larger online platforms for established businesses
• $75/month: $900/year, seen at some specialty lenders for seasonal or variable-use lines

Businesses with strong balance sheets often negotiate annual fee waivers by agreeing to maintain a compensating deposit balance with the lending bank. Check the lender evaluation criteria guide to see what financial metrics put you in a position to negotiate.

Draw and Transaction Fees: The Cost Buried Inside Every Withdrawal

A draw fee is charged each time you pull money from your credit line. At 2 percent per draw, a business that makes six draws of $10,000 each pays $1,200 in draw fees alone, in addition to interest on those balances.

Online lenders are far more likely to charge draw fees than banks. A 2025 survey by the Innovative Lending Platform Association found that 68 percent of online LOC products included draw fees, versus only 12 percent of bank products (ILPA Lending Standards Benchmark, 2025).

Draw Fee Calculation Examples

Wire and ACH Transfer Fees

Separate from the draw fee, some lenders charge $15 to $35 per fund disbursement for wire transfers. ACH transfers often carry no additional cost, but same-day ACH can carry a $10 to $15 premium. These charges are buried in the account services agreement, not always in the main loan documents.

If you anticipate making frequent small draws, a product with no draw fee but a higher interest rate may be less expensive overall than one with a lower rate but a 2 to 3 percent draw charge. See revolving LOC vs. term loan comparisons for a side-by-side cost structure analysis.

Unused Line Fees: Why Sitting on a Credit Line Still Costs Money

An unused line fee, also called a commitment fee, is charged on the portion of your credit limit you have not drawn. It compensates the lender for reserving capital against a draw that may never come. The typical range is 0.10 to 0.50 percent annually on the undrawn balance.

On a $500,000 revolving line with $350,000 unused, a 0.25 percent commitment fee costs $875 per year in fees paid on money you never touched. That number grows substantially on large institutional facilities where unused line fees often run 0.375 to 0.50 percent (S&P Global Market Intelligence, U.S. Commercial Credit Report, 2025).

When Unused Line Fees Apply

Banks and credit unions are more likely to charge unused line fees on revolving credit facilities over $250,000. Online lenders rarely apply this fee on smaller lines under $100,000, though some reserve the right in their agreements. The fee is almost always assessed quarterly or annually, not monthly.

Minimizing Unused Line Fees

• Right-size your credit limit to match realistic peak borrowing needs, not aspirational ones
• Negotiate a fee floor so the fee applies only above a minimum undrawn threshold
• Confirm whether minimum draw requirements exist that eliminate the unused fee if met
• Ask if the unused fee is waived during the first six months while you establish a draw pattern

For businesses managing seasonal cash gaps, the working capital line of credit guide covers how to structure a facility that minimizes idle-balance costs.

Calculating True APR: How to Add Every Fee Into Your Real Borrowing Cost

The interest rate on your LOC agreement is not your true annual percentage rate once fees are included. A 10 percent stated interest rate on a $100,000 line can become an effective cost of 14 to 18 percent after origination fees, draw fees, and annual charges are factored in (Federal Reserve Bank of Kansas City, Community Banking Study, 2025).

The formula for a simplified all-in APR on a revolving facility is: (Total Interest Paid + Total Fees Paid) divided by (Average Outstanding Balance), expressed as a percentage over the period. This approach is an estimate, not a GAAP-compliant APR, but it gives a workable comparison number.

All-In Cost Scenario: $100,000 LOC Used at 60% Average Utilization for 12 Months

Four Steps to Calculate Your True LOC Cost

1. List every fee in the agreement, including fees listed only in the account services addendum
2. Estimate your average monthly drawn balance based on how you plan to use the line
3. Divide total annual fees plus projected interest by average annual balance
4. Compare that number across at least three competing offers before signing

The LOC requirements checklist for 2026 includes a pre-application fee comparison worksheet you can use before submitting any application.

Frequently Asked Questions

What is the most common fee on a business line of credit?

Can I negotiate fees on a business line of credit?

What is the difference between an unused line fee and an annual fee?

How do draw fees affect the true cost of a business line of credit?

Is the interest rate on my LOC agreement my actual APR?